Sector Update for February 16th

Last week's sector review found that we were getting bullish short-term trend readings for most of the eight S&P 500 sectors that I track. That post stressed, however, that, in order to achieve an upside price break, we needed to see Demand exceeding Supply (i.e., more stocks closing above their moving average volatility envelopes than below) and new 20-day highs outnumbering new lows. We could not sustain that indicator strength and now have moved back to the bottom end of the recent trading range between 800 and 876 on the S&P 500 Index.

Here are the Technical Strength readings for the eight sectors as of Friday's close. Recall that Technical Strength for each sector varies from strong downtrend (-500) to strong uptrend (+500), with values between +100 and -100 indicating no dominant trend:

MATERIALS: -400 (45%)
INDUSTRIAL: -300 (28%)
CONSUMER DISCRETIONARY: -320 (26%)
CONSUMER STAPLES: -220 (33%)
ENERGY: -160 (53%)
HEALTH CARE: -180 (76%)
FINANCIAL: -300 (15%)
TECHNOLOGY: -60 (54%)

We can see that the short-term trends have turned bearish for the economically-sensitive sectors, such as Materials and Consumer Discretionary stocks, as well as Industrial and Financial issues. Technology has shown relative strength, as has the NASDAQ 100 Index overall.

On a somewhat longer time frame, in parentheses above, we can see the percentage of stocks in each sector that closed above their 20-day moving averages, as reported by the excellent Decision Point site. Only three of the eight sectors show more than half their stocks trading above that benchmark, compared with seven last week.

Clearly we've weakened since last week and now are testing major support in the 800 area of the S&P 500 Index. We closed Friday with new 20-day highs across the NYSE, NASDAQ, and ASE at 492; new lows were 596. As long as we cannot sustain a plurality of new highs, I expect the market to breach that 800 level and test the bear market lows of November. As always, I will be tracking new highs/lows, Demand/Supply, and the percentage of stocks above their moving averages via Twitter each morning before the market open (free subscription via RSS).
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